Taking a cautious stance, the Reserve Bank today cut CRR by 0.25% – the percentage of deposits banks keep with central bank – but refrained from reducing lending rates.
The RBI decision, which comes days after a slew of measures taken by the government to push growth, will release Rs 17,000 crore of primary liquidity into the system.
The liquidity infusion, RBI said, would ensure adequate flow of credit to productive sectors of the economy.
Following the cut, CRR will come down to 4.5% while the repo rate, at which the central bank lends to the banks, would remain unchanged at 8%.
The reverse repo, at which it absorbs excess liquidity through borrowings from banks, remains at 7%.
RBI cuts FY13 GDP growth forecast to 5.8% and raised FY13 inflation projection to 7.5%.
RBI said the CRR cut will be effective from November 3. The moderation in CRR rate is likely to goad banks to bring down their lending rates, which will improve investments and help growth.
Speaking on the occasion, RBI Governor D Subbarao said that the CRR cut was necessary to pre-empt a prospective liquidity strain.
Markets react sharply
Markets have reacted sharply to the news. The indices which were trading flat after the opening, witnessed a sudden decline after the news started flowing in. The Sensex has fallen 0.7% to trade at 18509, while the Nifty has seen a decline of 44 points or -0.8% to trade at 5622.
Lacklustre trades in markets. (Update at 10:46 AM)
Markets are trading on a listless note ahead of the Reserve Bank of India’s credit policy announcement which is due later in the day today. The Sensex is up 18 points at 18,654 and the 50-share Nifty is up 11 points at 5,678.
Meanwhile, Bharti Airtel is the top Sensex gainer, up 1.4% at Rs 273. ICICI Bank, Infosys, HUL, Dr reddy’s Labs, Mahindra & Mahindra, SBI, Sterlite Industries and HDFC are also trading higher by 0.5-1.3% each.
Among the individual stocks, Bombay Dyeing has soared 8% to Rs 115 after stock turned ex-stock-split today.
Bharat Electronics Limited (BEL) has dipped 4.5% .